We all understand that budgeting is the key to saving more money and to having more money to spend. What many people don’t realize is how small budgeting blunders can snowball and become big issues over time. Avoiding most if not all of these budgeting mistakes can make a significant difference in your budgeting success.
Why is estimating your expenses one of the biggest blunders to make?
We all spend more than we think on everything we buy whether its food or utilities and we seldom remember all of the small expenses that can really add up. Estimating expenses as part of the budgeting process will only lead to an unrealistic budget that can’t ever be accomplished. Before setting a budget, track your expenses for 2 – 3 months to determine what you really spend.
What are common budget busters that are usually missed?
Unexpected events such as car repairs or a trip to the hospital are usually never included in someone’s budget. That is why you really need to have an emergency fund and budget item for savings. The other often missed budget category is the miscellaneous category for expenses like birthday gifts, office pools, and other one-time expenses that are usually less than $75.
How should irregular expenses like insurance or property tax be handled?
For expenses that only happen one or two times per year, the best method to work these into you budget is to divide the expense by 12 months and build that into the budget. Saving these funds each month into a specific savings account ensures you will have the money to pay these annually or semi-annual expenses.
Should people budget based on their gross or net income?
The preferred method is net income because that is what your really have to spend each month. The added benefit is that it eliminates the need to budget for taxes, insurance and other payroll deductions which simplifies your budget.
What are some of the major financial blunders people make that can wreck their budget?
Buying too much house and/or too much car are the biggest. And it’s not the loan payments for these items that cause the problems. For most, they forget that the variable expenses like insurance, maintenance, and other costs are more with a bigger house or a newer or more expensive care. Your goal should be to keep housing costs to 30% of net income and transportation to 10%.
Are there any social habits that can be detrimental to living your budget?
There are two: Trying to keep up with friends as it relates to possessions; and, shopping with free spenders cause you to spend over your budget. Most are very money conscious and justify spending because of the spending of your peers.
What are key habits for having a successful budget?
Following these three habits will lead to a more successful budget experience:
- Tracking spending on a monthly basis
- Updating the budget allocations at least annually
- Including fun money as part of the budget
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Categories: Budgeting, Money Matters, Saving